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Diverse Beliefs

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  • Angus A Brown
  • L C G Rogers

Abstract

This paper presents a general framework for studying diverse beliefs in dynamic economies. Within this general framework, the characterization of a central-planner general equilbrium turns out to be very easy to derive, and leads to a range of interesting applications. We show how for an economy with log investors holding diverse beliefs, rational overconfidence is to be expected; volume-of-trade effects are effectively modelled; the Keynesian `beauty contest' can be modelled and analysed; and bubbles and crashes arise naturally. We remark that models where agents receive private information can formally be considered as models of diverse beliefs.

Suggested Citation

  • Angus A Brown & L C G Rogers, 2010. "Diverse Beliefs," Papers 1001.1450, arXiv.org.
    • Handle: RePEc:arx:papers:1001.1450
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    References listed on IDEAS

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    Cited by:

    1. Timothy C. Johnson, 2012. "Ethics and Finance: the role of mathematics," Papers 1210.5390, arXiv.org.
    2. A. A. Brown, 2009. "Heterogeneous Beliefs with Partial Observations," Papers 0907.4950, arXiv.org.
    3. A. A. Brown & L. C. G. Rogers, 2009. "Heterogeneous Beliefs with Finite-Lived Agents," Papers 0907.4953, arXiv.org.

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